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Which 1099 Type Do I Choose?

Available for: Patriot Accounting (Basic and Premium) and Patriot Payroll (Basic and Full Service) .

When you pay vendor bills or update vendor payment history in Patriot Accounting or you’re adding a contractor in payroll, you must assign a 1099 Type to each payment. The 1099 Type tells Patriot which IRS form — Form 1099-NEC or Form 1099-MISC — and which box on that form to report the payment in at year-end.

Key definitions:

  • Form 1099-NEC: The IRS form used to report nonemployee compensation — payments made to independent contractors and other self-employed individuals for services. “NEC” stands for Nonemployee Compensation.
  • Form 1099-MISC: The IRS form used to report miscellaneous income payments such as rent, royalties, medical payments, and other specific payment types. “MISC” stands for Miscellaneous Information.
  • Nonemployee compensation: Payments made to contractors, freelancers, or other individuals who are not employees, for services performed for your business. This is the most common 1099 type for small businesses paying independent contractors.
  • Vendor: In Patriot Accounting, a vendor is any person or company you pay for goods or services. Vendors who are independent contractors and receive $600 or more in a calendar year typically require a Form 1099-NEC.

Which Form Do I Use: 1099-NEC or 1099-MISC?

Use Form 1099-NEC for payments to independent contractors, freelancers, and other nonemployees for services performed for your business. This is the correct form for the vast majority of contractor payments.

Use Form 1099-MISC for all other 1099-reportable payments — rent, royalties, medical payments, attorney gross proceeds, and other specific types listed below.

In some cases, you may need to file both Form 1099-NEC and Form 1099-MISC for the same vendor if you made different types of payments to them. Patriot tracks each payment type separately.

Wrong 1099 type selected? Use the Update 1099 Type tool to correct it. See our help article, “How to Correct a 1099 Type” for instructions.

Form 1099-NEC: Nonemployee Compensation

Select Nonemployee Compensation (1099-NEC) for the following payments of $600 or more:

  • Payments to contractors, freelancers, or other self-employed individuals for services performed for your business
  • Fees, commissions, prizes, and awards paid for services (not for products)
  • Attorneys’ fees paid in the course of your trade or business
  • Cash payments for fish or aquatic life purchased from someone in the fishing trade
  • Excess golden parachute payments (amounts paid to corporate officers exceeding a multiple of their average annual compensation)

Form 1099-MISC Payment Types

Select one of the following Form 1099-MISC types for the corresponding payment:

Rents — Real estate rentals for office space, machine rentals (for example, renting a bulldozer), pasture rentals, rental assistance payments for housing projects, and coin-operated amusements.

Royalties — Gross royalty payments of $10 or more from oil, gas, or mineral properties; royalties from intangible property such as patents, copyrights, and trademarks; gross royalties paid by a publisher to an author or literary agent (if not a corporation).

Other income — Other income of $600 or more that is required to be reported on Form 1099-MISC but does not fit any other box. Examples include prizes and awards given for something other than services (for example, merchandise won on a game show).

Fishing boat proceeds — An individual crew member’s share of proceeds from the sale of a catch on a fishing boat with fewer than 10 crew members, or contingent cash payments up to $100 per trip for additional duties such as mate, engineer, or cook.

Medical and health care payments — Payments of $600 or more to physicians or other medical or health care service providers made in the course of your trade or business; payments made by health, accident, or sickness insurance programs.

Substitute payments in lieu of dividends or interest — Aggregate payments of at least $10 received by a broker for a customer as substitutes for dividends or tax-exempt interest resulting from the loan of a customer’s securities.

Crop insurance proceeds — Proceeds of $600 or more paid to farmers by insurance companies, unless the farmer has notified the insurance company that the expenses have been capitalized.

Gross proceeds paid to an attorney — Gross proceeds of $600 or more paid to an attorney in connection with legal services, where the payment is not for the attorney’s own services (for example, settlement payments). Note: payments for an attorney’s own services go on Form 1099-NEC, not 1099-MISC.

Fish purchased for resale — Cash payments of $600 or more to any person in the business of catching fish, if you are in the trade or business of purchasing fish for resale.

Non-1099 Payments

Select Non-1099 Payment for payments that should not be reported on a 1099, including:

  • Expense reimbursements (for example, supplies)
  • Payments made to a vendor by credit card (credit card payments are reported by the card issuer, not by you — see “Recording a Vendor Payment Made by Credit Card”)
  • Payments to corporations (generally not 1099-reportable)

Additional Resources

For complete IRS guidance on which box to use, see the IRS Instructions for Forms 1099-MISC and 1099-NEC.

The 1099 Type dropdown in Patriot Accounting corresponds directly to the boxes on Forms 1099-MISC and 1099-NEC.

  • Rents
    • Real estate rentals paid for office space
    • Machine rentals (e.g., renting a bulldozer to level
      your parking lot)
    • Pasture rentals (e.g., farmers paying for the use of
      grazing land)
    • Rental assistance payments made to owners of housing projects
    • Coin-operated amusements (e.g., video games, pinball machines, jukeboxes, pool tables, slot machines, etc.)
  • Royalties
    • Gross royalty payments (or similar amounts) of $10 or more
    • Royalties from oil, gas, or other mineral properties before reduction for severance and other taxes that may have been withheld and paid
    • Royalty payments from intangible property such as patents, copyrights, trade names, and trademarks
    • Gross royalties (before reduction for fees, commissions, or expenses) paid by a publisher directly to an author or literary agent, unless the agent is a corporation
  • Other income
    • Enter other income of $600 or more required to be reported
      on Form 1099-MISC that is not reportable in one of the other
      boxes on the form
    • Prizes and awards that are not for services performed (e.g., merchandise won on a game show)
  • Fishing boat proceeds
    • Individual’s share of all proceeds from the sale of a catch or the fair market value (FMV) of a distribution in kind to each crew member of fishing boats with normally fewer than 10 crew members
    • Report cash payments of up to $100 per trip that are contingent on a minimum catch and are paid solely for additional duties (such as mate, engineer, or cook) for which additional cash payments are traditional in the industry
  • Medical and health care payments
    • Payments of $600 or more made in the course of your trade or business to each physician or other supplier or provider of medical or health care services
    • Payments made by medical and health care insurers under health, accident, and sickness insurance programs
  • Substitute payments in lieu of dividends or interest
    • Aggregate payments of at least $10 of substitute payments received by a broker for a customer in lieu of dividends or tax-exempt interest as a result of a loan of a customer’s securities
  • Crop insurance proceeds
    • Proceeds of $600 or more paid to farmers by insurance companies, unless the farmer has informed the insurance company that expenses have been capitalized under section 278, 263A, or 447
  • Gross proceeds paid to an attorney
    • Gross proceeds of $600 or more paid to an attorney in connection with legal services (regardless of whether the services are performed for the payer)
    • Are made to an attorney in the course of your trade or business in connection with legal services, but not for the attorney’s services, for example, as in a settlement agreement
    • Generally, you are not required to report the claimant’s attorney’s fees
  • Fish purchased for resale
    • If you are in the trade or business of purchasing fish for resale, you must report cash payments of $600 or more to any person engaged in the business of catching fish.
  • Non 1099 payment

Form 1099-NEC type:

  • Nonemployee compensation
    • Payments made to contractors, including fees, commissions, prizes, awards, and other forms of compensation for services performed for your trade or business by an individual who is not your employee
    • Services performed by someone who is not your employee
    • Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish
    • Payments to an attorney (Attorneys’ fees of
      $600 or more paid in the course of your trade or business)
    • Excess golden parachute payments
      • Amount over the base amount (the average annual compensation for services includible in the individual’s gross income over the most recent 5 tax years)

For more information about 1099 types, check out the IRS’s Instructions for Forms 1099-MISC and 1099-NEC.

The choices in the 1099 Type dropdown list on the “Enter & Pay Bills” page under “Payables” correspond with the boxes on Forms 1099-MISC and 1099-NEC.

In some cases, you may need to report nonemployee compensation and other 1099 types. In those cases, you need to use both Form 1099-NEC and 1099-MISC.

For details on which form and box to select, see the IRS Instructions for Forms 1099-MISC and 1099-NEC.

 💡 Did you choose the wrong 1099 Type? Use our handy Update 1099 Type tool to correct it. Read more on our help article, “How to Correct a 1099 Type.”

 

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